Source: amazon.com
Peloton looks to get back in shape by selling on Amazon
Peloton, which seemingly overnight went from boom to bust, last week reached a deal to sell through Amazon.com’s U.S. website, marking its first wholesale selling relationship.
Previously, Peloton’s products were only sold on its own website and high-touch showrooms.
“U.S. Amazon has become the default first-stop shopping destination for hundreds of millions of customers worldwide,” said CEO Barry McCarthy last week in Peloton’s fourth-quarter shareholder’s letter. “Our Peloton store on amazon.com will bring a selection of our products closer to the Amazon’s U.S. customer base and allow us to directly act on fitness-related shopping queries occurring on Amazon every week.”
Customers can search Amazon’s website to see if Peloton products are available in their area with delivery fulfilled by Amazon. For the first time, Peloton is offering a self-assembly option.
Items available include the Original Peloton Bike ($1,445) and Guide Strength Training Device ($295) as well as apparel, shoes, weights and other accessories. Peloton will not sell its higher-priced Bike+ and Tread online because they cannot yet be self-installed.
More retail partnerships are expected to be announced soon.
Peloton’s sales surged so much amid the pandemic lockdowns that customers canceled orders due to month-long waits. As gyms reopened, Peloton’s sales crashed and losses swelled. Peloton’s market capitalization has shrunk to $3.2 billion from as high as $50 billion in early 2021.
Mr. McCarthy, who in February replaced John Foley, Peloton’s founder and CEO, has largely focused on cost-cutting, including layoffs and outsourcing production and delivery, to realign expenses with reduced sales expectations.
To revive top-line growth, Mr. McCarthy, a former Spotify and Netflix executive, has particularly talked up growing subscriptions to take advantage of Peloton’s workout content, perhaps significantly reducing hardware prices and hiking subscription rates. Peloton also may sell pre-owned bikes and is testing rentals (e.g., $60-$100 monthly fee for Bike rental plus classes).
Asked about the potential for Peloton’s retail entry, Mr. McCarthy said, “We have modest assumptions in our forecast related to the impact for that business. I hope there’s tremendous upside. But we won’t know till we know.”
- Peloton Launches Products, Apparel And Accessories In Amazon’s U.S. Stores – Peloton
- 4Q 2022 Shareholder Letter – Peloton
- Peloton Interactive (PTON) Q4 2022 Earnings Call Transcript – The Motley Fool
- Peloton will sell fitness equipment and apparel on Amazon – The New York Times
- Why Peloton Is Selling on Amazon – The New York Times
- Peloton’s New C.E.O. on the Tough Road Ahead – The New York Times
Discussion Questions
DISCUSSION QUESTIONS: Do you see more of an upside or downside to Peloton’s deal to sell on Amazon and possibly with other retailers? Would the selling relationships make more sense should Peloton shift to a subscription-first strategy and further lower its bike and treadmill prices?
Poll
Loading …BrainTrust
Jeff Weidauer
President, SSR Retail LLC
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Desperate times call for desperate measures, and when you’ve just produced a full year loss of $2.8 billion things sure are desperate! This is really part of a cost saving shift by Peloton which will see it close its own stores and rely more heavily on direct sales, of which Amazon plays a part. It is sensible for items like apparel and accessories – which it hopes to sell more of – but I am not convinced it will drive the sale of more bikes and equipment. Demand for those things has dropped back, and the recent price increases will do nothing to re-energize it.
More market access will probably help Peloton’s sales a bit. It certainly makes sense for them to democratize the availability of their products a bit. Inflation is a serious headwind for expensive subscriptions. I believe that will be the biggest barrier to their success.
The plain fact is that Peloton is seeking their true size. They’re obviously not “pandemic huge” so shrinking and trying new things was inevitable. Having said that, just how big/small should they be? A smart move might be hiring someone from LA Fitness or the like to help lay out a strategy of how the workout business (with all its ups and downs) actually operates. Theranos, WeWork, Peloton, on and on with the “we’re going to change the world” mantra. Turns out, not so much.
At this point, not selling on Amazon is a detriment to any brand looking for more immediate sales expansion. I have always been a fan of brands keeping their channels vertical to protect the access and experience, but Amazon is too large to ignore. The one cautionary note is to make sure that they build in the margin loss dealing with Amazon services and that they launch new products directly for a period of time to capture consumer data.
Mr. McCarthy got one thing correct: “U.S. Amazon has become the default first-stop shopping destination for hundreds of millions of customers worldwide.”
Indeed, more exposure is a good thing. But they are failing to look deeply at their market. It surprises me that they didn’t anticipate that people would return to their preferred gyms once the pandemic was over. HUBRIS?
Amazon has become the default search engine for anyone looking to buy just about anything – moving here makes sense for Peloton. The question is whether that decision came soon enough. And Peloton is still known mostly for its bikes when it should be playing up its massive content library.
Peloton is smart to team with Amazon to get more exposure for their product, but they still remain a pricey machine for most — especially now when customers have less available income to invest in a non-essential piece of equipment.
The good news — Amazon = access. The bad news — Amazon = competition. Significant competition. Yes, that competition was already there, but now it’s side by side on the same screen. The move to Amazon will probably help, but it’s no silver bullet.
Since they have shifted from a product strategy to a content strategy, the more ways to get bikes and treadmills into consumer hands the better! Amazon could well be the partner Peloton needs, especially if they start to team up on content.
The answer is both. Purchase accessibility has been working for Peloton. Before increasing its subscription price in June, Peloton hit a new all-time high in-app purchase revenue in May. More than any month during workout-at-home times and a 200 percent increase in just 90 days. What was happening at the time? Lowered bike prices and the roll out of its rental program. The combination resulted in lots of new members and new members are critical for Peloton. While app revenue has increased and is still on a record streak, monthly active users of the app are on a sequential decline. So bottom line is — make it easier and more accessible for new members to join.
I also love that executives commented on the earnings call that they would be making it possible for people who have non-Peloton bikes to access the content. This will all add up.
Unfortunately this won’t reverse Peloton’s decline. While it can open up the connected fitness stock to a wider market, if you’re looking for its bike you could just as easily head over to Peloton’s website as Amazon’s.
I’m guessing the whole connected fitness phenomenon was more fad than trend, or at least niche, since it carries such a high entry price point and requires a recurring monthly subscription commitment. Peloton isn’t adding many new subscribers, and those it has are not taking as many classes as they once did. The number of classes streamed is down 26 percent year to date.
Peloton burst on the seen at just the right moment, but its future is one of being a small, niche business.
Perfectly said. I suspect that as consumers start to wonder where their money is going at the end of the month, they’re going to take a hard look at all those recurring monthly subscriptions and will be making lots of cuts.
Peloton should look to capitalize on its digital subscription model versus just product sales. Memberships are a key strategy for the majors like Walmart+, Amazon Prime, BBB’s Welcome Rewards, Costco, etcetera. A digital fitness subscription could be a unique offering and also cement that retailer as a destination for the brand to drive physical merch sales.
The right sizing of the Peloton operating model is the absolute right strategy, especially after reporting a $1.2B quarterly loss. With the declining revenue, negative gross margins, and deeper operating costs, Peloton has had to drive a turnaround and comeback plan. The DTC operating model and luxury high-end equipment prices have not been a successful strategy in a post-pandemic surge world.
The partnership with Amazon is Peloton’s first attempt to sell products outside its direct-to-consumer model, like its e-commerce site and showrooms. It’s clear that Amazon’s scalability, reach, and distribution capabilities will enable Peloton to expand its reach. However, the brand will need some revitalization and a product diversification strategy that will extend into apparel, accessories, and, most significantly, a value-driven model with a good, better, best bike assortment to help drive revenues up.
First, any company or brand should consider all possible/available channels to market and sell. For Peloton, given their situation, they should absolutely look at the Amazon channel — as well as other retail options. The subscription model trumps the equipment sale. Sell the bikes at cost and bolster the numbers on the monthly and annual subscriptions. I’m sure Peloton wants as many customers as possible riding their bikes versus the competitors’, but the subscription dollars are the big payoff.
Important to note, Peloton got into this mess because they used cash to overproduce bikes to meet the demand wave, then profit got buried in supply chain shipping delays, then made investments in a premium bike customers don’t want, and finally an Ohio factory they don’t need. So when bike demand slowed in 2022, they were left with nice showrooms on leases they can’t afford and no $ room to maneuver.
If anyone can move volume, it’s Amazon. And this could be an excellent way for Peloton to test price sensitivity and create a new kind of customer experience to buy online and set up their own bikes at home. The partnership could help save Peloton.
Why optimism? Because there is still an ample percentage of people who don’t want to get in the car, in traffic and burn time in a gym full of people using machines they want to use.